Why VMware Needs A New Direction

In my last article, I analyzed the real motivation behind the VMware’s recent intention to acquire Nicira. In this article, I am going to review VMware’s past strategies and predict its long term strategies. In short, VMware’s past growth strategy is “vertical,” and its future growth strategy should be “horizontal.”

Past Strategy Review

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Since 2008 VMware has been aggressively seeking to grow up the IT stack into middleware and application space (in cloud term, PaaS and SaaS). That is basically Microsoft strategy which had been extremely successful for Microsoft to grow from Windows operating system to middleware/tooling, and Office suite. As today, each of these businesses represents 1/3 of Microsoft’s overall revenue. Given top exectutives’ long time at Microsoft, it’s no surprise to anyone that similar strategy was adopted at VMware.

As part of the vertical growth strategy, VMware acquired SpringSource (the company behind the popular Spring Framework in Java developer community) in 2009, followed by a series of smaller acquisitions like GemStone, RabbitMQ, etc. Mostly open sourced, these products and the in-house developed database based on Postgres consist of a complete offering of middleware, even though lots of works are still needed to unify these products for better integration and consistencies. If you’ve worked in IT industry long enough, you know it takes time and many of the key talents may be gone within years. That is what’s happening with SpringSource including its founder Rod Johnson, COO Rob Bearden who is now CEO of Hortonworks, VP Engineering Peter Cooper-Ellis who is in same role at Cloudera.

On the application side, VMware bought Zimbra from Yahoo for a discounted price, and then a few startups companies like SlideRocket, Socialcast, Digital Fuel. The level of the products is at application level but really delivered as cloud services via Web. At one point, I was wondering VMware would build a SaaS version of Microsoft Office, therefore Web based spreadsheet, word processor would be its next acquisition target. Somehow it didn’t happen, at least not yet.

Three years after the SpringSource deal, we haven’t seen the magic happened in terms of rapid revenue growth. VMware’s huge success on virtualization did not warrant its success on the middleware and application space. Although VMware has won the trust of system administrators, these system administrators are not really the target audiences for the middleware and application products. VMware definitely knew about it, and that is exactly why it paid good money ($362 million in cash and equity and $58 million of unvested stock and options) for SpringSource in hope to boost its mindshare with developer community. The obstacles seem just too big to overcome in short time.

To be fair, both the middleware and application spaces are tough businesses competing with not only Microsoft but also other big names like IBM, Oracle, Redhat, not to mention many open source options out there. Beyond that, technically speaking the virtualization technology does not give VMware much differentiation in supporting its middleware and application because the hypervisor interfaces are simply not as sticky as the Windows APIs. In other words, VMware does not have much leverage with its leading virtualization products.

As of today, if you ask around about VMware, most people still equal it with virtualization, not much association with other products in its rich portfolio.

Future Strategy Prediction

While the vertical growth strategy has not yet succeeded, VMware’s core server virtualization is increasingly challenged by Microsoft’s Hyper-V and open source XEN and KVM. Any mistake on the virtualization could be disastrous for VMware as it’s still the only cash cow in house. So VMware must solidify and enhance its core virtualization.

After the “software driven data center” last year, VMware finally got it right with “software defined data center” this year. The one word difference led to the recent acquisition of Nicira, which is a leader in the “software defined networking” space. Maybe the SDD was inspired by SDN?

Anyway, the acquisition is the first step for VMware to grow horizontally in the data center infrastructure software. In some way, you can call server virtualization “software defined compute.” After the Nicira deal, you can naturally guess the next big acquisition should be “software defined storage,” whatever that is. I will explore the SDS later on.

That is not the end of the story. With the building blocks of SDC, SDN, and SDS, VMware should then move up the management stack (not the runtime stack as before. Difference? see my previous article on two stacks) to build a suite of management tools that covers different aspects of the data center management and operations including automation, security, chargeback, DR, backup, etc.

With the horizontal growth, VMware will have better integrated infrastructure software that covers all the aspects of a data center – compute, network, storage, and management. This new growth strategy will have far better chance to succeed because it can leverage not only VMware’s existing user base, but also its strong engineering expertise in infrastructure software. More importantly, these are relatively new areas without established players yet.

Again, nothing is easy to grow a technology company especially in size like VMware. More important than the strategy (do the right things) is the execution (do things right) which ultimately determines whether acquisitions worth big money. With a right strategy in place, same investment can yeild multipled result.

There were rumors around whether VMware would spin off a new company focusing on cloud. I will discuss it in a separate article later. Stay tuned.

I think your comments have got it mostly right. However, I think the one thing that is being missed is how VMware can enable the virtualization systems administrator to becoming a true systems engineer, even architect in many cases. More and more firms are demanding exactly that out of their virtualization professionals, regardless of their title & compensation. Some of this is the economic conditions that we are currently in, but a good majority of this is simply the capabilities of operations and delivery systems have out paced the expansion of operations and delivery professionals skillsets. A good deal of this is due to VMware’s products; so now they must continue to feed the monster by equipping their clients system designers and operators w/ an even greater ability to deliver on the promise their products provide at an ever increasingly higher, more integrated level.

This is going to mean more of a DevOps focus than is already present. This is actually a source of an advantage for VMware because their positioning across many of its products allows for incorporation of the tools, methodologies and frameworks active within that movement. vFabric App Manager was a great step in this direction, but increasingly firms are pushing on the IT Operations units to do more with less [a familiar refrain]. This is going to mean Chef, Puppet, Python [both native and the Puppet-competing project Salt] and PHP.

Lets back up for a moment.
Python and PHP are open opportunities that — if VMware can create meaningful frameworks that focus on the DevOps problem but can be extended into Application Development and delivery, show real promise. Additionally, they can often be integrated with existing Java solutions, so it doesn’t cannibalize their Spring investment [at least not right away]. Additionally, a lot of this can simply be accomplished through extension and or retooling of the vFabric family of products.

While what I am saying is not fully fleshed out, the idea is that that they need to look into converging a few more blue ocean strategies w/ some of the horizontal growth that you mentioned [creating sort of a pyramid/spearhead if you will] so penetrate further up & across the stack in a way that makes sense for them, given their current place in the market.

Thanks for sharing your thoughts Donovan, I agree with you that VMware should invest more on enpowering the devops. In the end, I think every company needs a focus and it’s infrastructure software for VMware.

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